If zero-coupon bonds are available with an implied interest rate of 5% and a face value of $30,000, what is the approximate purchase price for those bonds?
A) $28,571.43
B) $30,000
C) $1,428.57
D) $31,428.57

Question

Quizplus · Accepted Answer

The formula for the price of a zero-coupon bond is:
Price = Face value / (1 + interest rate)^n
Where n is the number of years until maturity.

Using this formula, we can plug in the given values to find the price:
Price = 30,000 / (1 + 0.05)^1
Price = 30,000 / 1.05
Price = 28,571.43

Therefore, the approximate purchase price for the bonds is $28,571.43. So, the best choice is A.

If Zero-Coupon Bonds Are Available with an Implied Interest Rate